U.S. trade deficit hits 10-year high; job growth slowing

WASHINGTON (Reuters) – The U.S. trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration’s tariff-related measures to shrink the trade gap likely have been ineffective.

Other data on Thursday showed private employers hired fewer workers than expected in November, pointing to a moderation in the pace of job growth. That was reinforced by another report showing a small decline in the number of Americans filing claims for unemployment benefits last week.

The reports added to weak housing and business spending on equipment data in signaling a slowdown in economic growth. Concerns over the health of the economy have roiled financial markets in recent days.

The Commerce Department said the trade deficit increased 1.7 percent to $55.5 billion, the highest level since October 2008. The trade gap has now widened for five straight months. Data for September was revised to show the deficit rising to $54.6 billion instead of the previously reported $54.0 billion.

The politically sensitive goods trade deficit with China surged 7.1 percent to a record $43.1 billion in October.

The United States is locked in a bitter trade war with China. Washington has imposed tariffs on $250 billion worth of Chinese imports to force concessions on a list of demands that would change the terms of trade between the two countries.

China has responded with import tariffs on U.S. goods, including soybeans. President Donald Trump has long railed against China’s trade surplus with the United States, and accuses Beijing of not playing fairly on trade.

In addition to the duties on Chinese goods, Washington has slapped tariffs on steel and aluminum imports into the United States this year. On Saturday, Trump and Chinese President Xi Jinping agreed to hold off on imposing more tariffs for 90 days while they negotiate a deal to end the trade dispute.

The truce appeared to be in doubt on Thursday following the arrest in Canada for extradition to the United States of Meng Wanzhou, the chief financial officer of Chinese technology giant Huawei Technologies Co Ltd and the daughter of its founder.

“We remain skeptical of a substantial trade deal,” said Jake McRobie, a U.S. economist at Oxford Economics in New York.

Economists polled by Reuters had forecast the overall trade deficit rising to $55.0 billion in October. When adjusted for inflation, the goods trade deficit increased to $87.9 billion in October from $87.2 billion in September. The so-called real trade deficit is above the average for the third quarter.

Trade subtracted 1.91 percentage points from GDP growth in the July-September quarter. Growth estimates for the fourth quarter are around a 2.8 percent annualized rate. The economy grew at a 3.5 percent pace in the third quarter.

U.S. stocks were trading sharply lower as Wanzhou’s arrest sparked fears of a flare-up in Sino-U.S. tensions. Prices of U.S. Treasuries were trading higher while the dollar () was weaker against a basket of currencies. In October, exports of goods and services slipped 0.1 percent to $211.0 billion. Soybean exports, which have been targeted by China in the trade dispute and have been dropping for the last several months, fell $0.8 billion. Exports of civilian aircraft and engines also fell.

But exports of petroleum and consumer goods were the highest on record. A strong dollar is probably restraining overall export growth.

IMPORTS HIT RECORD HIGH

Imports of goods and services rose 0.2 percent to $266.5 billion, an all-time high. Consumer goods imports increased by $2.0 billion to a record high of $57.4 billion, boosted by a $1.5 billion jump in imports of pharmaceutical preparations.

Motor vehicle imports were the highest on record in October, as were imports of other goods.

Imports are being driven by strong domestic demand as well as the strong dollar, which is making the prices of imported goods cheaper, likely offsetting the impact of tariffs.

Separately on Thursday, the ADP (NASDAQ:) National Employment Report showed private payrolls rose by 179,000 jobs in November after a downwardly revised increase of 225,000 in October.

Economists polled by Reuters had forecast private payrolls advancing 195,000 last month following a previously reported 227,000 increase in October.

The ADP report, which is jointly developed with Moody’s Analytics, was published ahead of the government’s more comprehensive employment report for November, which is scheduled for release on Friday.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 200,000 in November after surging by 250,000 in October. The unemployment rate is forecast holding steady at near a 49-year low of 3.7 percent.

Though the ADP report has a spotty record predicting the private payrolls component of the government’s employment report, job growth could be slowing. Part of the cooling is likely because of a shortage of qualified workers.

In a third report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 231,000 for the week ended Dec. 1.

Economists had forecast claims falling to 225,000 in the latest week. Claims had risen for three straight weeks, touching an eight-month high of 235,000 during the week ended Nov. 24.

“There are distinct signs that the labor market has reached its peak,” said Chris Rupkey, chief economist at MUFG in New York. “Job layoffs are increasing, which fits hand and glove with the uncertainty businesses are facing over tariffs, and the stock market turbulence may have also dented confidence as well for companies who may be trimming their staff just a little just in case.”

A fourth report showed the Institute for Supply Management (ISM) said its non-manufacturing activity index rose 0.4 point to a reading of 60.7 last month. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity.

But the ISM’s employment measure fell 1.3 points last month, with employers in the construction industry reporting difficulties finding workers “due to lack of qualified talent.”